Series 6 > Account Types and Disclosures > Flashcards

Account Types and Disclosures Flashcards

Identify types of customer accounts and understand required disclosures and registration methods. (34 cards)

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1
Q

What is a brokerage account?

A

An account that allows investors to buy and sell securities.

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2
Q

Fill in the blank:

A ______ account is managed by a broker who has written authorization to make trades without client consent.

A

discretionary

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3
Q

List two types of advisory accounts.

A
  • Fee-based account
  • Commission-based account
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4
Q

What is the primary difference between a cash account and a margin account?

A
  • A cash account requires full payment for purchases.
  • A margin account allows borrowing funds.
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5
Q

Fill in the blank:

A ______ account that offers tax advantages such as tax-deferred growth or tax-deductible contributions for retirement savings.

A

retirement

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6
Q

What is a wrap account?

A

An account that charges a single fee for investment advice and transaction costs.

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7
Q

List three types of brokerage accounts.

A
  • Individual account
  • Joint account
  • Custodial account
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8
Q

What is the main purpose of a trust account?

A

To manage assets on behalf of beneficiaries.

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9
Q

Fill in the blanks:

Investors should receive a ______ ______ when opening a new brokerage account, detailing terms and conditions.

A

disclosure document

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10
Q

What does TIC stand for in account registration types?

A

Tenants in Common

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11
Q

How does a Joint Tenants with Rights of Survivorship (JTWROS) account differ from a TIC account?

A

In JTWROS, ownership passes to surviving owners upon death.

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12
Q

Fill in the blank:

In a ______ account, all owners have equal rights to the account’s assets and transactions.

A

JTWROS

(Joint Tenants with Rights of Survivorship)

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13
Q

List two key features of a Tenants in Common (TIC) account.

A
  • Ownership can be unequal
  • Upon death, ownership passes to the owner’s estate
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14
Q

What happens to the account assets in a JTWROS account if one owner dies?

A

Assets transfer to the surviving owner(s).

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15
Q

Fill in the blank:

In a Tenants in Common account, each owner can choose to leave their share to ______.

A

their estate or heirs

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16
Q

What are the two main types of Individual Retirement Accounts?

(IRA)

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A
  • Traditional IRA: Contributions may be tax-deductible, earnings grow tax-deferred
  • Roth IRA: Contributions are made with after-tax dollars, qualified withdrawals are tax-free

Traditional IRAs are often chosen for their immediate tax benefits, while Roth IRAs are favored for tax-free withdrawals in retirement.

17
Q

Fill in the blank:

Contributions to a ______ IRA are not tax-deductible, but qualified withdrawals are tax-free.

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A

Roth

Roth IRAs are beneficial for individuals who anticipate being in a higher tax bracket during retirement, as withdrawals are tax-free.

18
Q

What is the penalty for early withdrawal from a Traditional IRA before age 59½?

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A

10% penalty

In addition to the 10% penalty, the withdrawn amount may also be subject to ordinary income tax. Exceptions to the penalty may apply in certain situations like first-time home purchases or education expenses.

19
Q

List three types of employer-sponsored retirement plans.

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A
  • 401(k)
  • 403(b)
  • SIMPLE IRA

These plans offer tax advantages to employees, such as tax-deferred growth and, in some cases, employer matching contributions.

20
Q

Fill in the blank:

A 403(b) plan is typically available to employees of ______ organizations.

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A

non-profit

403(b) plans are often used by public school employees and employees of tax-exempt organizations, offering similar benefits to 401(k) plans.

21
Q

What is the maximum annual contribution limit for a Traditional IRA in 2023 for individuals under 50?

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A

$6,500

Individuals aged 50 and over can make an additional catch-up contribution of $1,000, bringing their total limit to $7,500.

22
Q

Describe the tax treatment of contributions to a 401(k) plan.

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A

Contributions are made pre-tax, reducing taxable income

This tax treatment allows employees to defer taxes on contributions and earnings until withdrawal, typically in retirement.

23
Q

Fill in the blank:

The required minimum distribution (RMD) age for IRAs and 401(k) plans is ______.

Study These Flashcards
A

73

The age for required minimum distributions was increased from 72 to 73 starting in 2023, allowing retirees to delay withdrawals and potential tax liabilities.

24
Q

What type of retirement plan is designed specifically for self-employed individuals and small business owners?

Study These Flashcards
A

SEP IRA

A Simplified Employee Pension (SEP) IRA allows employers to make tax-deductible contributions on behalf of eligible employees, including themselves.

25
List **two benefits** of tax-advantaged retirement accounts.
* Tax-deferred growth * Potential tax deductions on contributions ## Footnote Tax-advantaged accounts encourage saving for retirement by offering immediate tax benefits and deferring taxes on investment growth until withdrawal.
26
What does **ERISA** stand for?
Employee Retirement Income Security Act ## Footnote ERISA was enacted in 1974 to protect the retirement assets of American workers by implementing rules that qualified plans must follow to ensure plan fiduciaries do not misuse plan assets.
27
List three key **fiduciary** responsibilities under **ERISA**.
* Acting solely in the interest of plan participants * Carrying out duties prudently * Following the plan documents ## Footnote ERISA sets standards of conduct for those who manage an employee benefit plan and its assets, known as fiduciaries. These responsibilities are designed to protect the interests of plan participants and beneficiaries.
28
# Fill in the blanks: ERISA requires that plans provide participants with important information, including \_\_\_\_\_\_ \_\_\_\_\_\_ and \_\_\_\_\_\_.
plan, features and funding ## Footnote This requirement ensures transparency and helps participants understand their benefits and rights under the plan.
29
What is the **primary purpose** of ERISA?
To **protect retirement assets** by implementing oversight rules. ## Footnote ERISA establishes minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.
30
Name two types of **employer-sponsored** retirement plans **covered by ERISA**.
* 401(k) plans * Defined benefit pension plans ## Footnote ERISA covers a wide range of retirement plans, including both defined contribution plans like 401(k)s and defined benefit plans, which promise a specified monthly benefit at retirement.
31
What is a **key disclosure requirement** under ERISA for plan administrators?
Providing a Summary Plan Description | (SPD) ## Footnote The SPD is a comprehensive document that informs participants about their plan and how it operates, including details about benefits, rights, and obligations.
32
# Fill in the blanks: Under ERISA, a fiduciary must diversify plan investments to minimize the risk of \_\_\_\_\_\_ \_\_\_\_\_\_.
large losses ## Footnote Diversification is a fundamental principle under ERISA, aimed at reducing the risk of significant losses that could affect the plan’s ability to provide benefits.
33
What is a **prohibited transaction** under ERISA?
Transactions **between the plan and a party** in interest. ## Footnote Prohibited transactions include sales, exchanges, or leases of property, lending of money, or furnishing of goods, services, or facilities between the plan and a party in interest, to prevent conflicts of interest.
34
List **two types of information** that must be disclosed to plan participants under ERISA.
* Plan rules and regulations * Financial information about the plan ## Footnote ERISA mandates that participants receive detailed information about plan operations and financial status, fostering transparency and informed decision-making.
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